Bits Bucket And Craigslist Finds For October 30, 2006
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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From the WSJ: As Home Owners Face Strains, Market Bets on Loan Defaults
The WSJ has mentioned that the amout of home buyers has increased in the last 10 years due to the sub-prime market. They have been harping on this quite a bit recently. Talk about the ultimate FB.
Subprime lending has put as many as two million families into homes over the past decade, helping push the U.S. homeownership rate up to 69% from 65% — a major shift toward an “ownership society” that politicians of all stripes have touted as one of the nation’s economic successes. As the bets play out, they will show how much of that success is permanent, and how much a temporary phenomenon fueled by overly aggressive lending.
So far, the subprime market has held up relatively well. But it’s beginning to show some cracks — most evident in the nascent derivatives trade, which provides a useful window into investor sentiment. Since August, when house prices logged their first year-on-year decline in more than a decade, the cost of insurance against defaults on bonds backed by subprime loans has risen as much as 16%, suggesting investors are concerned that more homeowners will start to renege.
“You’ve got a lot of borrowers who didn’t have credit before, and a lot of them don’t know how to manage that credit,” says Dan Castro, managing director at GSC Group, a New York asset-management firm that focuses on the mortgage market. “The place where you’re really going to see fallout is in the subprime.”
The advent of the subprime market reflects a sea change in the way banks make home loans. As recently as the mid-1990s, potential homeowners had to get over high hurdles to borrow money. Background checks could take weeks or months. Lenders typically required down payments of at least 20% of a home’s value. People with dented credit, or young folks without adequate credit histories, had few if any options.
Over the past decade, though, a convergence of factors has emboldened banks to lend where they wouldn’t before. For one, the development of the Internet and advances in computing technology have made it much easier and cheaper to process and package new loans. Electronic databases on borrowers have made it easier for banks to assess the risk of lending to people with shakier credit, while new insurance-like derivatives have helped them mitigate that risk. And robust demand from investors — both in the U.S. and abroad — has given banks a big incentive to lend, because they can easily turn around and resell the loans in the form of bonds, reaping a tidy profit.
I swear I hear something ticking ….
i keep reading the forums at creditboards for some info. that is where subprime people go to find out how to get a loan, and there are LO sharks there waiting to sell them ARM’s and IO and other crazy loans and explain how things work.
so far i haven’t read too many stories about foreclosures
At creditboards.com one of the ‘advisors’ mentioned this will be the next big thing:
Home Ownership Accelerator
http://www.cmgfs.com/partner/
Basically, you direct deposit your entire paycheck into your mortgage. The balance lowers your principal for a while; adjustable interest is charged daily and you get to write checks on it just like a checking account.
Ah, yes! Another sleight of hand scam! Just a couple of little points here. First, there are not that many people making $96,000 a year (I assume before taxes!). Second, the 10% savings rate this guy quoted might apply to the Chinese but it sure doesn’t apply to americans. The savings rate is negative in the US………
I didn’t get any further in the presentation after I saw the “suck ‘em in” image of the guy playing golf. Many, many years ago I sold R.V’s for a year and the owner of the company told us to, “Paint a picture when showing a potential buyer an R.V.” He told us to try and put an image into the mind of the would-be owner. Tell them what it would be like to pull up next to a lake on the nice day in your R.V, grab your rod and reel and go catch some fish while your wife gets ready for supper, etc, etc.
I used to try and hold back a laugh during these sales “lessons” because I couldn’t believe people would be dumb enough to fall for it but, sadly, that kind of crap worked and plenty of people bought into the r.v dream. However, in almost every case, instead of the r.v being parked near a lake while the owner went fishing, it usually ended up stuck in the driveway of the guy’s house for the next 2 or 3 years until he finally decided to get rid of it………..at a greatly used price.
These gimmicks come and go but NOTHING has yet managed to take the place of the old, 20% down over a 30 year period at a fixed rate the borrower feels comfortable with. Sorry if I sound like a stuck-in-the-mud old fart but I’m not impressed by all of this sudden “new ways to finance” b.s.
I’ve heard this type of loan is fairly standard in Australia, and somewhat on a lesser scale in Canada and some European countries. Though it sounds interesting, the variable rate part of it is a deal-killer to me. If they ever made this fixed-rate, I’d take a very close look however.
They sure do a good job of hiding the fees on thier website…I could not find them.
Here is a video from the UCLA economists actually sayying that the days of housing being stictly an investment are “DEAD” for the next 5 years.
http://video.msn.com/v/us/v.htm?g=32B27920-411C-4A5E-BA76-22BD1B193149&t=c150&f=06/64&p=hotvideo_m_edpicks>1=8618
The new predatory lending:
1) Use suicide lending to get lots of subprime borrowers into homes they cannot afford;
2) Repackage the paper into MBS and sell to investors;
3) The investors then use a “newfangled derivative contract — similar to an insurance policy — that will pay off if enough loans in the (MBS) bond go bad.”
See, Mom, no bagholder!
Umm… isn’t the insurance company the bagholder then?
The problem with this structure is thus: If the insurance companies aren’t sufficiently capitalized (or don’t feel like paying) they’ll either file for bankruptcy or refuse to pay and throw the whole package into court. Once there, the defaults will continue and the loans will be consigned to a sort of limbo since nobody will want them. Meanwhile, the MBS investors will be holding the bag, so they’ll sue the lenders, but the lenders are enormously overleveraged, so they can’t pay either. They may sue the borrowers who took out liars’ loans, but everyone will know those suits are just for show.
Net result = massive defaults, massive litigation and massive damage to the financial system. Real estate will be consigned to the seventh circle of hell for investors for a long time after this debacle unwinds.
Hedge funds are buying these contracts and acting in the roll of an issuarnce company. And the hedge fund is using money provided primarily by pension holders like state employees, teachers, union workers and so on. These will be the ‘bag holders’ in this.
Hedge fund managers tend to have very little of their own money in the funds they manage — they collect on big fees. So they certainly would never be the ‘bag holder’. The worst case senario for the managers is having to look for a new job.
“The worst case senario for the managers is having to look for a new job.”
…and a bodyguard, or a new name and lots of plastic surgery.
uh.. cascading defaults…no risk there, right! Really, I think the only question is WHEN, not if it will happen. Far too much crap has been collateralized.
asu,
That’s how I see it as well.
Yes, and in the meantime, the houses become pawns while the chain of custody is bantered about in the courts. They sit vacant, now utilities, dead lawns, critters take over the occupancy and the effect on the rest of neighborhoods is like smiling with a dead tooth……….no happiness.
The Journal also has an article on RE Bulls who say the worst is over, and prices will rise (and affordability diminish?) from current levels.
From today’s The Daily Reckoning:
We take it for granted that when you borrow you have to pay
back. “He who takes what isn’t his’n, pays it back or goes to prison,” is
the old expression.
Or, on the other hand, according to the Denver Post, he who goes to
prison, can take what isn’t his, and still not pay it back. Colleague Dan
Denning - in Australia - drew our attention this morning to the
following:
“Lenders supplied former inmates millions of dollars to buy homes that
they never occupied at inflated prices.
“At The Villas at Cherry Creek in Aurora, a gated community overlooking
Cherry Creek State Park, five former inmates bought 12 homes at inflated
prices in four months.
“Neighbors noticed these homes remained strangely vacant - until 150 cars
and hundreds of young people poured through the gates for a raucous party
at one villa last New Year’s Eve…
“One house on that list, 14001 E. Whitaker Drive, was offered for sale at
$525,000. The asking price then jumped $150,000, and Zion Development LLC,
which owned the house, sold it for $675,000 to Taiwan Lee.
Zion was managed by Timothy Todd DeNeui, a Highlands Ranch businessman who
serves on the advisory board to Global Connection International, a
Christian missionary organization that works in Third World and communist
countries.
Lee was 23 years old when Colorado paroled him in July 2004 on drug and
escape charges…On Feb. 17, 2005, when Lee bought 14001 E. Whitaker Drive
from DeNeui, he had been back in prison for seven weeks, according to the
Colorado Department of Corrections…DeNeui sold 14034 E. Whitaker that
day to Cindy Ingram, also wanted for violating parole on drug charges. She
borrowed $1.8 million for those homes. Talita James, a convicted cocaine
dealer, bought two villas across the street from each other in one day for
$1.1 million, promising to occupy them both. Her brother Torrence James
and Ervin Camack, both released from federal prisons in Colorado, each
bought another villa.”
“Where did all the money go?” asks the Post.
Apparently, Torrence James and Ronald Fontenot, a man he met in federal
prison in Colorado, became mortgage brokers in Colorado, which did not
regulate brokers at the time.
Then, the Post tells us:
“James and Fontenot recruited buyers, supplied false loan application
information, arranged to buy homes ‘above the listed sales prices’ and
told sellers the homes would be appraised above asking prices, an
indictment against them alleges.
“They also set up businesses purporting to make home improvements, which
they instead used to siphon money at loan closings to themselves and pay
kickbacks to the buyers…”
The lawsuit against the pair accuses them and others of taking $2.1
million on 17 houses sold at inflated prices, most of which have been
foreclosed, and of stealing others’ identities and forging their
signatures. It seems that De Neui, Torrence James, Fontenot and a broker
would sell homes to “straw buyers or investors at escalated sales prices
supported by inflated appraisals.”
And what happens to the shady loans?
“Critics say mortgage companies have little incentive to ferret out
inflated sales because they bundle and resell their home loans to Wall
Street investors, taking their profits and diluting fraud losses in large
pools of mortgage-backed bonds.
“‘These securities get “sold in little pieces all over the world,”‘ said
Lou Barnes, a Colorado mortgage bank owner. ‘It makes it very difficult to
figure out who, if anyone, bears any responsibility for the flow of
Colorado’s foreclosures.’”
And, there other schemes involved in the fraud. The Denver Post
continues:
“One woman says her health and retirement have been compromised by an ID
thief’s buying homes in her name…Jantz traces her troubles to the day in
2005 that she explored the idea of refinancing her home. She gave her
Social Security number over the phone to several mortgage brokers whose
offers sounded promising.
“‘My big mistake,’ she said.”
But she is not alone. Many Americans have been making mistakes almost as
bad. In the five years since 2001, Americans have added $5.3 trillion to
their indebtedness - up 77 percent. The longer the boom lasted, the more
they took out - reaching a peak in the first half of 2006, when cash was
getting taken out at the rate of nearly $700 billion per year.
Have a friend who just decided to rent and not buy — but not before being subjected to the latest round of Realtor hype - that is, that the worst is over for the market.
Would like to know how many of you all have heard this line lately, in the press and among potential homebuyers/homesellers, and how in the world you think such a prediction got any legitimacy whatsoever given the continued spike in inventory and continued gaps between cost of renting vs. owning, and housing costs vs. income.
Wondering why the press continues to be the messenger for this b.s. instead of all the hard data to the contrary.
Don’t forget: last week Greenspan said “most of the negatives may be behing us” and then he said “there are some signs of stabilization” (a comment i heard plagiarized repeatedly), and then he said “it’s not over”. Who knows what his motivation is? I can’t believe he really thinks the negatives are behind us.
“Who knows what his motivation is?”
His reputation. His legacy. He is clearly full of you know what, and I think he knows that we know he’s full of you know what.
He also seems to think he can still use a few well-placed sound bites for the press to lap up to bend the markets to his will. I don’t think anything he says will be up to the task of making the all-time record inventory of new homes for sale suddenly vanish overnight, especially given how fast new homes are still under construction.
Who knows what his motivation is?”
Gee, maybe the 100s of thousands of $ he gets paid by Wall Street for giving “lectures” (i.e. shilling).
I’m be more than willing to spout the same BS for 1% of the money.
“Don’t forget: last week Greenspan said…”
He did a great job making the rich even richer!
its greenspeak.what he meant is the worst of the rising prices are over and there are more price declines coming.
Check out this link:
http://www.gold-eagle.com/editorials_01/seymour062001.html
It’s the Pompous Prognosticators graph of the stock market crash in the 30s. Check out #11. This should tell us where we are in the downturn. It’s funny how people’s comments and attitudes follow the same path always in the boom/bust cycles.
Nice linkie. I got it listed on Fark.com for a very broad audience. Cheers!
I had a thought overnight.
I see a distinct possibility that by Q3 of 2007, the official line from NAR/CAR et. al. will be (co opting the message here) look this was a bubble, we knew it was a bubble and tried to warn you all, you wouldn’t listen.
Now, Mr. Seller if you want to get out from under that mortgage you will have to price it based on rents with a nominal premium for ownership.
They will only starve for so long before cannibalizing their sellers.
SSBG,
I think they’re already doing this to an extent. At least they are complaining about “stubborn sellers” instead of blaming the stagnation on “unreasonable/stubborn buyers”.
Good guess that they will be trying to sell the buy vs rent numbers. I wonder if 2007 isn’t to early, though.
“Have a friend who just decided to rent and not buy…”
Housegeek,
We’ve had several solid discussions about this topic over the last 4 days. You might want to click backwards to Thursday and read the discussions within the threads forward to Sunday.
In a nutshell, some of us think rent prices will probably drop or stay flat b/c F’d sellers (no equity or savings and can’t sell at lower homebuilder bargain price), re-partment project owners, and new condo developments turned apartments will all add to the inventory of rental properties.
Watching 2 properties that were purchased within the past few months.
Property 1 sold in June for $2.2MM. It’s now being offered as an rental for $3,900.
Property 2 sold in April for $1.6MM. It’s rental price is $5000.
Both are probably FBs, but is shows that there is a great deal of uncertainty in the rental market right now.
I think that one has to separate the mulit-family dwellings from the single family residences when having this discussion.
Any realtor who says that “the worst is behind us” is uninformed and an eternal optimist as well. We will have to go through a spring market, in my opinion, to see where things are headed. But in Florida and Las Vegas, to name but a few, the only way is down.
You are gaining credibility for your profession every day- IMO.
Watched a local REIC Patty Hearst show last night - One of those shows where they show houses and chat like they are your friends. Anyway, no less than 10 times “The worst is behind us and it is now a great time to buy”. The “Best Buys of Bakersfield”.
The sad part is this clown and his partner always say its a good time to buy.
a bear is born
See, for example, yesterday’s article in LA Times online, about the “resilient Vegas housing market”:
“I don’t anticipate a return to boarded-up homes because of the current dip in the Vegas real estate market. As homes go into receivership, investors will snatch them up for rentals. I also expect some of the high-rises that were put on hold to be built.”
http://www.latimes.com/news/opinion/la-op-hopkins29oct29,0,3046982.story?coll=la-opinion-center
Saw this in the “Atlanta Business Chronicle:”
“The owner of a Buckhead condo project completed just over a year ago is resorting to an auction to sell off nearly half of the units that haven’t sold.
Fifty-five units at The View @ Chastain at 3820 Roswell Road will be auctioned Nov. 14, or 44 percent of the building’s 125 units. The auction comes at a time when the city’s condo market could be headed for an oversupply.
‘There is no question there is a great deal of [condo] supply,’
said Jonathan Berzack, acting manager for The Lofts at Chastain LLC, which built the $30 million project. ‘This will allow us to take our remaining inventory and sell out of the building in a reduced time frame.’
‘We thought we would sell out six months after completion,” he said. ‘But guess what? We have 55 left after 14 months. We did not do as well as we had planned. We’ve had four to eight sales a month. There is a lot of competition out there.’ “
>>>>>Wondering why the press continues to be the messenger for this b.s. instead of all the hard data to the contrary.>>>>
Because the press dosn’t want to do its job. They get press realeases from the Realtor associations and write an article on the content instead for doing any investigation
few weeks ago i was at a funeral and talked to a realtor from a large RE agent company on Long Island, near NYC. They serve Nassau and Suffolk county.
In her words, things are very very slow
But, But… Ny is “different”?
this is the suburbs, not NYC
NYC down too. Have a realtor friend who just sold an apt. on the Upper East Side for 515K. Original asking price 6 months ago was 699K.
Survey: Rising rates worry homeowners:
http://www.msnbc.msn.com/id/15481905/
Check out this article I saw on msnbc.com. One in seven respondents have adjustable rate mortgages and these poor fools believe that when their ARMS come due, they will be able to refinance and be OK. Many of them also believe that there homes will appreciate, and by a lot:
“Wells Fargo’s third annual homeowners study also found that homeowners expect their properties to appreciate, although they apparently are aware that price increases are slowing.
Some 10 percent said they expected their home values to increase a lot, 53 percent said they’d increase “a little,” and 27 percent said they’d stay the same. The rest expected a decline or weren’t sure.
Woo Ho said that one surprising finding was that younger homeowners — especially those born since 1964 — view their homes as a good investment as well as a place to live.
Overall, 72 percent of those surveyed said that the equity in their home was their most important investment, she said.
“That’s a shift,” Woo Ho said. “A home is now considered a major part of homeowners’ financial portfolios.””
This should give us a good idea what is going on in homeowners minds right now. It’s pretty sad, I think, if their homes are their best investment. They are in for a shock.
It is hard to take a guy named woo ho seriously.
LOL–I had the same thought!
I’m still laughing as I type this…Woo Ho.
I had an accountant by the name of Mei Ho…The Mei is pronounced My…I had a hard time telling my wife that Mei
Ho had recommended I sell some stocks.
“Mei” means “beautiful” in Chinese, not that it makes it sound any better
did any answer
A. home prices = inflation + less than 1% over the last 100 years ?
after deductable interest,hud,community banking bill- 0 down and all the BS
Editorial suggestion: “They are in for a *payment* shock.”
For foreign exchange beginners like me, FXhistory is a nice site.
az_lender buy more aussie bonds this mornie (with apologies to “imploder” for this parody of his style)
Why are my comments not posting?
Hmmm, I think it had something to do with the link I put in on msnbc’s article “Survey: Rising rates worry homeowners” It talks about people who have ARMS that are coming due soon and are worried about rising interest rates but most believe that they will be able to refinance and that their homes will appreciate, and by a lot. I think these homeowners are in for a bit of a shock.
It’s odd but the packets we send sometime take a very long time to route from our pcs to their destination server…ultimately it gets there, however.
In the MSNBC list of fast rising cities, is now the ones that are toast. Those folks need to start considering other alternatives. And the Wells Fargo chief is Doreen Wo Hoo .
Her name was probably wo and she married a guy named hoo.
if she were from Spain she could call herself Doreen Wo-de-Hoo
Do girls named Doreen ever go by “Do”?
any experts on buuilders contracts- what if you demand a price equal to that of comps at delivery date ?
doable ?
Probably, but why would you want that option. The builders can effectively control comps by giving more BMW’s etc. Just another way to commit suicide.
Kara Cascade?
“On 9/13/06 Kara was bragging about completing ‘two most profitable quarters in the history of our company.’
“On 10/06/06 Less than one month later Kara filed for bankruptcy protection.
“Tonight I am wondering if the rapid implosion of Kara is a significant event in the Falling Dominoes theory, or if that implosion is simply one of dozens of things that can (and will) happen before this trainwreck of an economy derails.”
No worries — quarantine procedures have been implemented to ensure that Kara’s untimely demise does not prove contagious.
shocking news
not
http://biz.yahoo.com/ap/061030/economy.html?.v=4
“Even though consumers spent respectably during the July-to-September quarter as a whole, the economy grew at a feeble pace of 1.6 percent, the slowest in more than three years. The culprit in the slowdown: the slumping housing market, which shaved just over 1 percentage point from overall economic activity.”
Some posters here over the weekend claimed the 1.6% growth figure was in error, and should have been 0.9% (something wrong with the way the auto sector results were folded into GDP). Can anyone either substantiate or refute this rumor?
Roubini addressed the issue yesterday on his blog; he agrees with Carson who first raised the issue in a Bloomberg interview. Roubini argues the government’s explanation in defense of the fluke was not adequate and he anticipates a better explanation or revision. He concludes as follows:
We thus expect BEA to provide a rapid clear and open explanation of this gross mismeasurement. The issue is serious enough to require an explanation: both for markets and investors as the reaction of major asset markets to a 0.9% estimate of growth would have been even poorer than the reaction on Friday to the 1.6% estimate; and for the public in general as this episode leaves the suspicion - until otherwise clarified - that the first estimate of growth was actually manipulated for other purposes.
Link to thread: http://tinyurl.com/y9me7r
Not a rumor…simply a forwarded article from Bloomberg. A former Commerce Dept. economist made the observation re: auto sales, and suggested a revision downward was in the cards.
Why do I suspect the revision process will get dragged out over a considerable period of time, and meanwhile the old number will circulate indefinitely in the MSM?
Nov. 8 would be a good day for them to blurt it out. Buried on page 99 behind all the election results.
Nah, they’ll probably wait ’till late Friday afternoon right b/4 happy hour.
“Increased pay and falling gas prices helped put more money into consumers pockets in September, but they didn’t rush to stores to spend that money, according to a government report Monday.
Spending by consumers fell 0.1 percent in September, according to the Commerce Department report, after a revised 0.2 percent rise in August. Economists surveyed by Briefing.com had looked for a 0.3 percent rise.
Personal income rose rose 0.5 percent, after a 0.4 percent rise in August. Economists had also looked for a 0.3 percent rise there.”
Now wait a second. How is this possible?
Can someone tell ‘Briefing.com’ that there is a housing market that should be taken into consideration?
> Can someone tell ‘Briefing.com’ that there is a housing market that should be taken into consideration?
Perhaps the housing market isn’t the entire economy? Lower cost of housing is going to have a ripple effect of it’s own.
WSJ p. 2
The Outlook — James Hagerty
Just when the gloomier pundits were starting to enjoy the housing slump, optimists are piping up to declare it could be almost over.
Former Federal Reserve Chairman Alan Greenspan, whose interest-rate cuts helped create what he once called “froth” in housing prices, said in a speech last week that he detected “early signs of stabilization” in the housing market. Some Wall Street economists also are saying the worst may be behind us.
Not so fast, replies Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd., a Valhalla, N.Y., research firm: “It’s going to get worse before it gets better.”
Both camps are making valid points. …
…
Largely because residential investment dropped at an annual rate of 17%, inflation-adjusted economic growth in the U.S. slowed to a feeble rate of 1.6% in the third quarter, …
(or was it 0.9%, as rumored here over the weekend???)
———————————————————————————————-
This article is in the usual WSJ style, which I describe as “Battle of the Experts” — long on conflicting expert opinion, short on information which would let the reader draw an intelligent opinion of his own. Missing from the article is any mention of how long previous housing busts played out (7 years+ in NYC and LA according to evidence presented last week in BusinessWeek). I guess it is different this time? Why? Or maybe it is not even a bust, but a dip?
did any of them buy any homes ?
now that it’s bottemed an all
downtown Chicago. I got off the train this morning at Madison and Canal streets. Right at the top of the stairs from the train garage (where a lot of commuters exit the station) there was something new.
Two 1.5 ton trucks. Each with “mobile” billboards. One from Schaumburg Hummer advertising a “HUGE Hummer Sale” and another announcing a family of five “HUGE condo auctions” (no reserves).
I’m sure it doesn’t mean anything. It’s different in Chicago.
Mina
Mina — are you able to follow and report back on the results of those condo auctions?
The temperature up here in Washington’s Columbia Basin is now in the mid 40s, and lows in the mid 10s. Yeah, I miss California, but I’d rather freeze than be in debt forever. Thanks Alan Greenspan, well done!
In Bankrate’s advice column today:
http://tinyurl.com/yy7soj
Dr. Don counsels a woman whose 5/1 ARM is apparently about to re-set. She gained enough equity in the five years to have the choice of re-financing or selling. While his analysis leads to the conclusion that a 30-year fixed is a better choice than a new 5/1, nowhere does he mention that during the next five years there likely will be no appreciation at all in the value of the house — he doesn’t even mention the possibility, let alone that the house may decline in value.
I just saw this from CNN Money — bubble proof markets.
http://money.cnn.com/popups/2006/biz2/newrules_bubbleproof/index.html
The assumption is that if something is good enough, it is worth it regardless of the price, which can only to up. Well, let’s just add two zeros the current average prices in these markets, so no one could afford them. Would the price still go up from there? No. And it won’t go up from here, either.
I saw that “biz2″ stuff yesterday; those articles couldn’t be directed at the middleclass that punch a timeclock.
These are the same clowns that last week had an article on the top 10 markets. 3 of the top 5 were in FLA. Every reader here knows just how great those markets are.
Quick question:
A friend in Tucson has to move, and has to sell. Last winter Zillow said the 2-bed house was worth $160K. Just before she listed, I told Friend to offer just a little less than the rest of the neighborhood so that her house wouldn’t sit unsold (Friend bought in ‘99, so she could afford a haircut.) Friend got a $160 offer but refused because it was contingent on the buyer selling her old house. Friend wanted $155K but finally had to settle for $150K. How did she do? Did my advice hurt her too much?
Doesn’t that depend on what the comps are right now? Has anything else sold in the area since?
I just checked Zillow. The comps are all ~170K, but they were all 3 bedrooms and 200 sq ft bigger.
zillow has extreme lag in a down market
5% high here 22151
3 bedrooms command a significant premium over 2 bedrooms, in most cases. I think you did your friend a favor, and that s/he did very well to get out (save the celebration ’til after escrow closes).
Good luck!
Lets see:
1) Inflated, unrealistic Zillow $ for a two bedroomer in bubbly Tuscon = $ 160K
2) Final selling price = $ 150K
3) House is prolly worth about 85-90K just guessing. I am assuming it’s a standard two bedroom Joe Sixpacker Desert Box without fancy landscaping, a gentrified address or a swimming pool.
Conclusion: Your friend did quite well getting rid of their house for close to Zillow/ wishing price at the height of the biggest Housing Glut in the history of mankind; in one of the worst areas on the planet.
Your friend owes you a pat on the back, a cold beer and a night on the town
“Did my advice hurt her too much?”
Nope. If she bought in ‘99 I’m she made more money than she ever dreamed possible.
As a realtor, I believe that you gave her good advise when you told her not to take a contingent offer. In this slow market, most of those contingent contracts will eventually fall apart when the buyers discover that they cannot sell their own places at a price that works for them. And, given that prices will most likely continue to fall, your friend was arguably “lucky” to get the job done now, rather than later.
From the LA Times: “Not an agents’ market, either
As home sales drop, so does the number of real estate pros, many of whom signed on during the recent boom.”
Say it isn’t true!
http://tinyurl.com/yylpkc
Only the strong will survive…any by that I mean those who can afford to ride the cycles, are technologically savvy, and have a well-earned reputation of being a realist.
Well, that just about disqualifies every one of them here in San Francisco.
At least all the ones advertising in my neighborhood’s little rag - and still calling all the smart non-buyers “Chicken Littles”.
I really hope that comes back and bites them in the ass.
I hope
Here’s an article on a broker who knows how to move inventory in a tough market.
http://www.washingtonpost.com/wp-dyn/content/article/2006/10/25/AR2006102501290.html
I just had to come on and tell you guys about something that happened to me yesterday at the gym.
I live just north of Seattle and while I don’t want to plug my gym, I will say it’s a “24 hr” establishement.
Anyway, I was relaxing in the spa along with about 5 or six other people, and having a nice conversation with a gentleman about the state of things in this country in general. Eventually the conversation ended up on real estate(after we had agreed that both personal and public debt were at atrocious levels).
I started talking about some of the stuff I have gotten from this blog and other places about how screwed up prices are, lending standards relaxed, etc. etc.
The guy next to us looked to be in his early twenties and jumped in to the conversation by saying I sounded fairly knowledgeable, that he was thinking about getting into real estate(by buying a house I think), and wanted to know what I thought about that.
So of course I started telling him about how far out of whack fundamentals are, prices are starting to fall all over, [insert all the stuff about the housing bubble everyone on this blog knows by heart here], and that I personally thought this might be a really bad time to buy.
A lady with (I assume) her husband on the other side of the spa chimes in and says she disagrees. Turns out she’s a mortgage broker.
After some debate, I sh1t you not, she actually told the guy “they’re not making any more land, so you better buy now before you’re priced out of the market.”
I think she used the exact words even!!!! I was flabbergasted. She then went on to smugly chide me for throwing my money away on rent, and to tell the young man that he shouldn’t even look at the amount of the loan - it really doesn’t matter. Only the monthly payment matters.
I was honestly flabbergasted! She was a walking housingbubbleblog cliche’!!
Oh here’s my favorite: “Interest only and neg-am mortgages were a good idea because you can invest the money you save every month and come out ahead!” My jaw literally dropped open on that one.
It was absolutely surreal. I could actually almost hear your guys ‘voices’ Obi Wan Kenobi style going through my mind.
“Use the comps Luke”
“Ammoritze Luke Ammortize!”
“David Lierah is your father[whhaaaaa??]”
So I proceeded to politely but systematically dismantle all her arguments using the “force” (of knowledge), much or mostly gained from reading this blog and other sources, mostly linked to from this blog.
It was almost like an EF hutton commercial after awhile - everyone in the spa started kind of gravitating around me to listen to what I had to say, and occasionally put in their $.02.
We also discussed the Fed’s role in all of this which she downplayed. She insisted that the fed didn’t actually control the money supply, they only set the prime rate. I tried to explain to her that that amounted to the same thing, and she dismissed my argument by saying that she had worked in banking for decades.
Everyone pretty much ignored the mortgage broker from then on.
Just when she got up to leave, I interrupted my conversation with the young man et al, to ask her one last question. “So how come the Fed quit publishing the M3 anyway?”
She didn’t appear to know what the M3 was. Her husband chimed in and said that they quit publishing it because it was meaningless, and that only credit matters. That sounded kind of incoherent to me, but then again, I don’t know all that much about the Fed, so maybe he’s right. Anyone?
So anyway, I had to fight really hard through all this to keep a straight face, and I had a HUGE laugh about it when I got out of the gym.
My last and most important advice to the young man was to READ THIS BLOG.
Thanks Ben! I crack myself up everytime I think of that little episode in the spa….
Seattle — great story. Thanks. The “EF Hutton” remark reminds me of Ben’s comment yesterday, how so many people now eavesdrop when he’s discussing housing in public places.
It was absolutely surreal. I could actually almost hear your guys ‘voices’ Obi Wan Kenobi style going through my mind.
“Use the comps Luke”
“Ammoritze Luke Ammortize!”
“David Lierah is your father[whhaaaaa??]”
LOL. Great story Seattle Renter. Keep spreading the Truth!!
Seattle Renter,
Think of the two scenarios that could’ve played-out. If you hadn’t happened to be there at the right time, and he had listened to that Broker, he may very well have ruined his financial situation for many years. It’s great that you stated the realities–and I’m sure you did it in a no nonsense, non-spin way that really got everyone in that hottub’s attention. You may very well have saved that guy’s rear. Pat yorself on the back for sticking to your guns.
DOC
You Rock! Saved another potential FB!
David
http://bubblemeter.blogspot.com
Seattle Renter-
So happy to hear your story. I have had a similar experience or two with potential buyers in the past few months. Potential buyers are becoming very receptive to facts.
Now I’m in the unfortunate position of having to work on potential sellers- friends.
I say “potential” because I believe they will not be selling their homes unless they lower their prices. And, so far, they’re still in la-la land. Time on the market has had no effect on them yet, they’re waiting for that one special person/fool who’ll pay last years price plus a bit of appreciation.
I see one set of friends going into foreclosure eventually and the other being stuck with a house they do not want in a neighborhood they no longer want to live in.
I tell them to check out the blog but they’re not interested.
Potential Buyers = Interested in facts.
Potential Sellers = Not interested in facts/ fantasy holds much more appeal.
Don’t forget to mention that you don’t make a dime if they don’t buy, but she makes several thousand if they do buy and use her insane financing.
I may have just found an exception, but for the most part I no longer talk to mortgage brokers. (Exceptions from this blog noted and, if allowed to make loans in CA, I will probably be using one of the ones who posts here. However, back in the real (or is it surreal?) world….) Why bother with someone who would willingly sell a product that will bankrupt the buyer?
I have the tv tuned to CNBC this morning as I am running around cleaning. They have been hmmming about spending down but wages up and are starting to natter on about the US consumer trying to rebuild savings instead of spending.
My question is this. All these consumers are butt deep in debt. With resets just starting is that where the money is going to? Higher mortgages, helocs, CC’s?Trying to tread water for a few more months? Or is debt service included in the consumer spending number? Thank you.
Yeah that was funny to hear those “economists” and others saying that the reason the American consumer is spending less now is because they’ve decided to “save” their money.
It got me to wondering if we’ve got a new definition now of “saving” money.
I’m under the impression that the average American has a ways to go digging themselves out of debt before they can go on to the next step, ACTUALLY SAVING money.
They made it sound like all of a sudden Americans have become finacially prudent savers! Just within the last month!
Not one mention of the fact that some my have reached the uncle point on the amount of debt they can carry.
Nope, we’re just all prudent savers now!
Paying interest is consumption, paying off debt is saving.
And borrowing is -ve saving. I think the reason that the savings rate is going up is simply that the home ATM is shutting down and there is less borrowing.
Hi everyone! Any So Cal housing bears here? I’ve posted my October charts on real estate $$$ transacted for the LAX/South Bay area.
“Hi everyone! Any So Cal housing bears here?”
Huh, is there really any other kind? SoCal is the epicenter for this whole bubble. Yeah, yeah, I know about Florida an Arizona, but SoCal will prove to be the mother of all bubbles in the US within the next two years. It is truly insane here.
It’s trully insane everywhere, JWM. In fact, we passed sanity several years back in just about every market.
And in the past 2 years, even the ones that seemed okay went down for the count.
There might be a small hovel in the hills of Kentucky occupied by a centenarian who hasn’t heard about the RE boom and has put her house on the market for a sane price.
But if she hired a realtor to sell it for her, I’m sure the realtor’s informed her of the riches to be made in RE.
This bubble blew through the whole d$mn country.
I hope so or my prognostication reputation is all shot to hell!
This Bloomberg article is political but I enjoyed the numbers regarding middle class wages which we’ve established as yet another pressuring influence in the unraveling of this housing bubble. These facts also illuminate why buyers would be embracing the psychology of greater caution.
http://tinyurl.com/ykvkjl
from:
Bush, Republicans Find Strong Economy Doesn’t Win Middle Class
By Brendan Murray
Oct. 30 (Bloomberg)
“U.S. employers are paying less of their profits in the form of wages and salaries than at any time since the Great Depression, according to Commerce Department data. Wages earned by private-sector workers fell to 51 percent of gross profits in the second quarter of this year, down from 55.5 percent at the start of Bush’s presidency.
At the same time, corporate profits reached a record $1.62 trillion in the second quarter, or 13.8 percent of national income at an annual rate. That’s up from 9.9 percent in 2000, according to Federal Reserve figures. During the same period, total compensation of workers, which includes wages and benefits, fell to 64.2 percent, compared with 71.7 percent in 2000.”
on its face this appears shameful, but what do these stats really mean? i think the only meaningful measure is gross income filed on individual 1040 income tax returns. and can the government really accurately measure the “american-ness” of these multinational corporations? I’m sure less stock of General Electric, Disney, Microsoft etc is owned by Americans in 2006 than in 2000. Am I happy that foreign governments’ pension funds are enjoying higher returns on the workproduct of American workers? I honesty don’t know.
Went to a few open houses in Noe Valley, San Francisco yesterday. They were all teeming with people so it looks like there are still plenty of GFs in that area. My favorite: a two bed place where half the living space had been done without permits and couldn’t be made legal because the ceilings were too low. Cost: $1.05m.
Every major downturn needs a few knifecatchers. The GF’s, or near GF’s now, are easily led into believing that “deals” are in the offing in San Francisco.
And those beliefs are wrong.
You all are always wondering where the next bubble is going to be. How about this?
http://www.altenergystocks.com/archives/2006/10/carbon_financethe_next_bonanza_1.html
Txchick- so what was your take on this article?
I’m gonna throw some IRA money into that idea. I liked it.
Too many variables with government intervention. Granted, it’s not likely that the current adminstration will do anything relating to emissions, but there will be a midterm election in a few days, and there are only two years left in this president’s term. Moreover, with tech developments for alternative fuels, there may be large-scale change in the forseeable future. Long term uncertainty = too much risk for my taste, and risk and retirement seem contradictory.
“The housing bubble didn’t burst in Pennsylvania”
http://www.pittsburghlive.com/x/pittsburghtrib/business/realestate/s_476854.html
Does this mean Pennsylvaina is ‘different’?
Money/CNN feature: “The Bonnie and Clyde of Mortgage Fraud”
Good stuff!
http://money.cnn.com/magazines/fortune/fortune_archive/2006/11/13/8393072/?postversion=2006103011
Wow. Probably deserves its own thread. Pretty much confirms our discussions about the mortage industry and the lack of responsibility by banks in the present lending environment:
“Hell, one of the owners of a bank was in my office the other day, and he told me that as long as the borrower makes his first mortgage payment and the bank sells the loan to his secondary investors before the loan goes into foreclosure, he really doesn’t give a crap whether the loans contain fraudulent documents or not.”
Unbelievable. I used to think I had pretty good imagination. Reading some of these mortgage scams the past few weeks- I mean the really “good” ones, not just lying about income on the forms- makes me think I’m not nearly as imaginative as I once thought.
Reading these stories also makes me think we may be heading back towards 1940’s prices, not 1990’s.
It appears there was more happening out there than even most of us could have dreamed of.
How come they never talk about “sellers on the sidelines”?
on friday,i was flipping around the radio dial while driving,and picked up Al Franken on air america radio,only listened for a few minutes,but he said “looks like the housing bubble popped” just a throwaway line.i didn’t hear much more because i came into range of a good jazz station.
ok, so 3rd quarter GDP stank. 3 of the last 4 quarters have been abysmal. Is the last 12 months the weakest since the 2001 recession?
“Zillow was hit with an FTC complaint brought by the National Community Reinvestment Coalition (NCRC,) which has just filed a consumer protection complaint to the Federal Trade Commission (FTC) alleging that ‘Internet financial services and real estate provider Zillow.com is misleading consumers, real estate professionals and financial service providers in on-line home valuations.’
The complaint specifically alleges that Zillow and its affiliated companies are intentionally misleading consumers and real estate professionals to rely upon the accuracy of its valuation services despite the full knowledge of the company officials that their valuation Automated Valuation Model (AVM) mechanism is highly inaccurate and misleading to consumers, including the general public, as well as to real estate and financial service providers,’ which could cause substantial injury to consumers.”
http://tinyurl.com/yac6zy
Sorry I dissapeared there for a while. I work graveyard and had to head home. Thanks for all the positive comments! I’ll read them all again when I wake up in 8 or 10 hours
Your story above was a very good one. Thanks!